Small companies not small anymore

The S&P/ASX Small Ordinaries Index is no longer a proper measure for small companies, according to fund manager SG Hiscock.

As a result, the manager will change the benchmark of its small companies fund and will rename the fund to reflect the decision.

“Since its inception, the focus of the SGH Small Companies Fund has been to invest in companies with market capitalisations of less than $500 million,” SG Hiscock managing director Stephen Hiscock said in a letter to investors.

“This is the breeding ground for the best growth opportunities on the Australian Securities Exchange (ASX).

“However, over time changes to the S&P/ASX Small Ordinaries Index mean that the average market capitalisation of index stocks is now approaching $900 million and the largest stock in this index now has a market capitalisation of more than $5 billion.”

Hiscock said less than 15 per cent of the index was represented by companies with market capitalisations less than $500 million.

He said he would change the benchmark of the fund to the S&P/ASX Emerging Companies Index as of 1 October.

The emerging companies index gives exposure to 200 companies that rank outside the ASX 300 largest companies and are less liquid and often under-researched.